Business groups welcome zero inflation and dismiss fears of deflation

Very low inflation rates could help Britain’s economic growth, business lobby group the British Chambers of Commerce (BCC) has said.

Official figures have shown that the rate of Consumer Prices Index (CPI) inflation fell to 0% in February, the lowest rate since estimates of the measure began in 1988.

The zero rate has surprised many analysts, who were expecting a figure of 0.1%, and some are now worried that there is a risk of deflation which could depress economic activity.

However, David Kern, the BCC’s chief economist, said: ‘We remain convinced that there is very little risk of a long period of deflation. Inflation in the service sector, which accounts for 80% of the UK economy, remains firmly above the Government's 2% target, and core CPI inflation in February was 1.2%.

‘Together with higher earnings, lower inflation is boosting people's spending power, and will contribute to economic growth in the year ahead.’

The CBI gave a similar response. Rain Newton-Smith, CBI director of economics, said: ‘Despite inflation dropping to zero, it is unlikely we will see falling prices for a prolonged period, particularly as the pressure from lower oil prices fades.’

Lower prices for food and computer games contributed to the drop in the rate from 0.3% in January. The February figure means that the cost of living is the same as it was a year ago.